Home Builders Forecast Steady Rise in 2014

Led by a resurgence in single-family production, housing will continue its climb toward higher ground in 2014, but builders are still confronting several challenges that could hinder the pace of the ongoing recovery, according to economists speaking at the National Association of Home Builders (NAHB) International Builders’ Show (IBS) in Las Vegas.

“My single-family forecast for 2014 is pretty aggressive…822,000 starts, which is likely 200,000 more than 2013,” said NAHB Chief Economist David Crowe. “There are five key points to the turnaround. Consumers are back, pent-up demand is emerging, there is growing need for new construction, distressed sales are diminishing and builders see it.”

Consumer confidence has returned to pre-recession levels and household balance sheets are on the mend. Year-over-year household formations are on the rise and are now averaging 620,000 compared to just 500,000 during the downturn. At the height of the housing boom, the U.S. was producing 1.4 million additional households each year.

Meanwhile, new home sales are averaging just 8.7 percent of total home sales, barely half the historical average of 16.1 percent. In the midst of the Great Recession, the cumulative lost number of existing home sales between 2007 and 2011 totaled more than four million, Crowe said. Moreover, the percentage of mortgages seriously delinquent has fallen and the decline has been larger in markets that had the highest rates.

In a sign that builders are well aware of the trend now underway, the NAHB/Wells Fargo Housing Market Index, which measures builder sentiment in the single-family housing market, has been above the 50 mark for the past eight months. Any reading above 50 means that more builders view sales conditions as good than poor.

However, Crowe cautioned that builders still face several headwinds, including rising building material prices, persistently tight mortgage credit conditions, difficulties in obtaining accurate appraisals and limited availability in labor and developed lots. Moreover, gridlock and uncertainty in Washington threaten to harm consumer confidence and future housing demand.

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